A survey of the competitive strategies used by NGO Microfinance institutions in Nairobi

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Abstract

The financial market is served by players who are formal, semi formal and informal.
Among the players are NGOs that have been offering microfinance services. These
NGOs are firms that are limited by guarantee and most of them were initially set up as
non-profit making institutions. Some fundamental changes have taken place in the
microfinance sector. They include increase in the number of players; NGOs, Cooperative
Societies and Banks, reduced donor financing and increased donor pressure that these
NGO MFls become sustainable. No funding was guaranteed and NGO MFls have had to
rely on their customers and business to survive. All these factors have led to NGO MFls
to employ various competitive strategies to survive.
This study sought to establish and document the various competitive strategies used by
NGO MFls in Nairobi to compete effectively in the industry. The study also sought to
establish the competitive challenges faced by the respondents as they operate in the
industry. There are 9 NGO MFls in Nairobi according to records, both at the NGO,
Coordination Bureau and at the Association of Microfinance Institutions in Kenya (AMFI).
Therefore a census study was carried out for the organizations.
Data was collected through a questionnaire method. All the questionnaires were
administered through the drop and pick later method due to unavailability of CEOs or their
designates. The response rate was 56%. The findings of the study indicate that the
respondents mostly employ strategies related to transaction processing. The most utilized
strategies were identified as making the loan application process quick and simple,
employing competent staff, easing the process of becoming a customer, making repeat
loans processing quick and convenient, offering high quality services, ensuring loans are
available when needed and ensuring there are sufficient funds at all time to meet savings
withdrawal requests by customers.
The least utilised strategies were identified as de-linking savings from loans i.e. not using
forced savings to guarantee loans, allowing higher savings withdrawal frequencies and
giving staff incentives. Based on calculated mean scores the respondents identified
imitation by other competitors, accessing finances to fund operations and loan portfolio,
staff tum over, shared vision between management and the Board of Directors the 3 major
competitive challenges.